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DKKm Forsikring A/SAlm. Brand Liv og Pension A/SAlm. Brand

Individual solvency need 1,362 197 Solvency I requirement 787 464 Total capital 2,212 893 Excess coverage 1,425 429 Solvency ratio/coverage ratio 2.8 192

Tier 2 capital

DKKm Amount(gross) Amount includedin total capital

Additional tier 1 capital 175 105 Subordinated capital 399 399

Total 574 504

Note: The total capital of Alm. Brand Forsikring and Alm. Brand Liv og Pension, respectively, has been reduced by proposed dividends of DKK 1,000 million and DKK 125 million, respectively.

ALM. BRAND

The implementation of the Solvency II rules will impose a number of requirements with respect to reporting, reporting of data, structuring of risk functions, etc. on the companies. It is important to note that the transition to Solvency II will not increase the total capital of the Alm. Brand Group, as Alm. Brand A/S calculates its total capital in accordance with the provisions applicable for financial holding companies, which are unchanged.

Banking activities

Alm. Brand Bank A/S applies the Danish FSA’s 8+ method for calculating the adequate total capital. The calculation according to the 8+ method is based on 8% of the total risk exposure amount plus a Pillar 2 margin for risks not asses- sed to be covered by the Pillar 1 requirement.

In the credit area, the Pillar 2 margin covers exposures re- presenting more than 2% of the total capital and credit risk concentration on industries and individual exposures, re- spectively. Moreover, a Pillar 2 margin is calculated on weak exposures representing less than 2% of the total capital. In addition to the specified margins in the credit area, the bank reserves a Pillar 2 margin on agricultural and commer- cial exposures, on mortgage deeds as well as on the private customer portfolio.

The calculation of adequate total capital in the market risk area is also consistent with the Danish FSA’s 8+ method. In addition, the bank reserves capital for market risk and operational risk. The calculation of operational risk is based on the basic indicator method, which calculates the opera- tional risk as 15% of the average net interest income and non-interest-related net income for the past three years. Going forward, the calculation of insurance liabilities in the

financial statements will include a profit margin and a risk margin. The profit margin expresses the expected future earnings from the existing portfolio, and the risk margin expresses a risk allowance in the form of the aggregate ca- pital cost chargeable to a third party if the third party were to take over the insurance obligations. Moreover, premium provisions must be discounted, which is not the case under the current rules. The risk margin will cause the provisioning level to increase, and these increases will be taken out of shareholders’ equity.

Overall, the equity of Alm. Brand A/S is expected to remain largely unchanged after the transition to the Solvency II rules.

Under the provisions applicable for the 2015 financial year, the company’s capital requirement is the higher of the Solvency I requirement and the individual solvency need. With the transition to Solvency II, the Solvency I require- ment for insurance companies will lapse. For Alm. Brand Liv og Pension, this means a decline in the capital requirement of approximately DKK 300 million as from 1 January 2016, as the individual solvency need is lower than the Solvency I requirement. For Alm. Brand Forsikring A/S, the individual solvency need has been higher than the Solvency I require- ment, and the change will therefore not have any impact on Alm. Brand Forsikring’s capital requirement.

Under Solvency II, it will be possible to reduce the capital requirement by the tax effect of a 1:200 year loss event. For Alm. Brand Forsikring A/S, this effect is approximately DKK 300 million. However, the company has not yet decided the extent to which this will be included.

The profit margin will be included in the calculation of total capital in future, subject, however, to an adjustment of the resulting tax charge. As a result, the total capital amounts of both Alm. Brand Liv og Pension A/S and Alm. Brand Forsik- ring A/S are expected to increase considerably as a result of the transition to Solvency II. In Alm. Brand Liv og Pension A/S, the profit margin reflects several years’ expected profit as a result of the long-tail nature of the agreements. In Alm. Brand Forsikring A/S, on the other hand, the profit margin reflects that most of the agreements entered into have less than one year left of the term of agreement.

It is important to note that the size of the profit margin will have a built-in seasonality and will generally be volatile. As a result, the total capital and the capital requirements may fluctuate more than they have done to date. Alm. Brand will therefore reassess the group’s capital target in 2016 in order to make allowance for this.

The group’s ability to distribute dividends is expected to remain unchanged after the transition to Solvency II.

Capital and solvency

DKKbn Bank Banking group

Total capital 1,378 1,325 Risk exposure 7,401 7,722 Total capital ratio 18.6 17.2 Tier 1 capital ratio 18.6 17.2 Individual solvency need (%) 14.0 13.7 Excess coverage (%) 4.6 3.5

By meeting the target, Alm. Brand will be able to absorb a 1:200 year loss event and still be solvent.

In 2014, a buffer was included in the capital target spe- cifically related to the extraordinary risk associated with the winding-up bank. The buffer has been calculated at 13% of the bank’s winding-up loans and advances including the exposure to the mortgage deeds sold by the bank to Alm. Brand Forsikring A/S in 2014.

The internal capital target calculated at 31 December 2015 was DKK 4,300 million, corresponding to an excess coverage for the group of DKK 762 million, against DKK 211 million at 31 December 2014. After proposed dividends and the increased share buyback programme, the excess coverage was DKK 141 million. The principles for determining the